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Indiana farmland values and cash rents down slightly, survey shows

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Written Thursday, August 20, 2009  

Indiana farmland values dropped slightly but held their own in a tumbling economy, according to the 2009 Indiana Farmland Values and Cash Rents Survey completed by Purdue University.

The survey, conducted each June by the Agricultural Economics Department, reports that the value of top quality farmland in Indiana declined 0.2 percent from 2008 numbers, while average and poor quality farmland declined by 1.2 percent and 1.7 percent, respectively.

Indiana farm managers, appraisers, land brokers, agricultural loan officers, Purdue Extension educators, farmers, and representatives from the Farm Service Agency county offices, Farm Credit System and insurance companies were asked to complete the survey, which had 328 respondents. Results from the survey and a full report are available online at http://www.agecon.purdue.edu/extension/pubs/paer/2009/august/dobbins.asp .

Craig Dobbins, Purdue Extension farmland economics specialist, said he was surprised that farmland values were not down more than they were.

“I expected the drop in grain prices and higher input costs would lead to a fairly significant drop in farmland values,” said Dobbins, who conducted the survey. “But farmland real estate is often seen as a strategy to hedge against inflation, so we may have some of that coming into play here.”

Statewide, top quality land averaging 182 bushels per acre for corn was valued at $28.40 per bushel; average quality land averaging 150 bushels per acre for corn was valued at $27.92 per bushel; and poor quality land averaging 118 bushels per acre for corn was valued at $27.44 per bushel.

The average value of bare Indiana cropland ranged from $3,351 per acre for poor quality land to $4,994 per acre for top quality land.

“The top quality land tended to hold its value better than poor quality land,” Dobbins said. “This means people in the market are more picky or selective about the land they purchase.”

For cash rents, Dobbins said “variation” is the buzz word.

“On a statewide basis, we found cash rents moving in just about every direction,” he said. “For top quality land, cash rents were up about 2 percent. For average quality land, cash rents were just about constant with 2008 numbers and for poor quality land cash rents were down 1 to 2 percent.”

The average estimated cash rent was $198 for top quality land, $158 for average quality land and $121 for poor quality land. The report showed that statewide, rent per bushel of estimated corn yield was $1.03 to $1.09 per bushel.

There were significant variations in cash rents by region of the state, Dobbins pointed out.

Some areas did see an increase, such as the west central and southwest regions of Indiana, where cash rents increased from 2.1 to 6.7 percent. The central and southeast regions reported constant or declining cash rents, while the north and northeast reported increases for top quality land and declines for average and low quality land.

The west central region has the strongest cash rents across all land qualities, ranging from $145 per acre to $220 per acre. Cash rents are the weakest in the southeast, ranging from $86 per acre to $146 per acre.

In looking to the future and trying to decipher what all these numbers mean for the 2010 crop year, Dobbins believes margins will continue to get tighter.

“We’ve seen some input costs drop, fertilizer prices seem to be declining and fuel declined but is coming back up,” he pointed out. “At this time, it looks like the net return for crop production is going to be smaller in 2010 than in 2009, and certainly 2007 and 2008, some cash rents will need to be adjusted downward.”

Dobbins recommends that if there were large upward adjustments in cash rents in previous years, tenants may need to convince landowners to make a downward adjustment because “It does not appear that the large margins needed to support high cash rents will be there for 2010.”

Now is the time, Dobbins said, for tenants to get out the calculators, sharpen the pencils and budget through what the potential returns are for each rental farm.

“Given the variability to both parts of the profit equation, it’s dangerous to lock in input prices but not revenue, or to lock in revenue but not input costs,” he explained. “Growers will have to work to protect both parts of the equation.”

The Purdue report also tracks the value of transitional and recreational land.

“There was a significant decline for both transitional land and recreational land,” Dobbins said.

The value of transitional land — or land moving out of agriculture — was down 7 percent and the value of recreational land had decreased by 13 percent, according to the survey.

“I think this is a general reflection of the economy,” Dobbins explained.

For questions and additional information about the survey, contact Dobbins at 765-494-9041 or cdobbins@purdue.edu .

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